Proceedings of 4th European Business Research Conference
9 - 10 April 2015, Imperial College, London, UK, ISBN: 978-1-922069-72-6
Influence of Supply Chain Management Strategy on Business
Performance: Experience from Malaysian Logistics Company
Sarminah Samad* and Zuhaimi Mohd Nor**
Supply chain management strategy (SCMS) and business performance are
two topics that have attracted a great concern by researchers. This study
was conducted due to the limitations of previous research findings and the
need to fill the research gap of previous research findings. Therefore this
study examined the relationship between supply chain management
strategy (SCMS) and business performance; the influence of SCMS on
business performance and the most important aspect of SCMS that
influences business performance in Malaysian logistics companies. A
sample of 150 managerial staff was selected based on convenient
sampling from the company registered under the Malaysian Logistics
Directory. The obtained data was analyzed based on inferential and
descriptive statistics using SPSS version 21. The results were in tandem
with the hypotheses of study in which: there is a relationships between
SCMS and business performance; all dimensions of SCMS influenced
significantly on business performance and alignment strategy emerged as
the most important strategy that influenced significantly on business
performance. Findings, implications and recommendations for future
research from this study are discussed.
JEL Codes: Management, Strategic Management
1. Introduction
Supply chain management strategy has been a focus of study by many scholars. SCMS is
important as it is one of efforts to minimize waste, optimize limited resources and
maximize value creation, from the supply and distribution of product based on a push and
pull system or factor. In a push system, the products will be pushed to the market where
the marketers will find the appropriate approaches to attract the consumers to buy the
products. The value of the products will only be gained and created when the products are
marketable at an acceptable price (Busi et al 2006). Several approaches have been
applied in addressing this issue. One of them is through the concept of SCMS in which
with its various strategies presumably will be able to achieve the main goal of increased
business performance. Therefore a proper approach and strategy needs to be proposed
to deal with this situation. Currently very scarce research that highlights a strategy for a
comprehensive and integrated approach of managing demand and supply in push system
regime particularly in Malaysian logistics industry (Sambasivan et al 2009 and Samad
2011). This study therefore examined the influence of SCMS on business performance of
Malaysian Logistics Companies.
* Assoc. Prof. Dr. Sarminah Samad, AAGBS, Faculty of Business Management, University Teknologi Mara,
Malaysia. Email: sarminasamad@gmail.com
**Zuhaimi Mohd Nor, AAGBS, Faculty of Business Management, University Teknologi Mara, Malaysia, Email
zuhaimi.mohd.nor@wdc.com
Proceedings of 4th European Business Research Conference
9 - 10 April 2015, Imperial College, London, UK, ISBN: 978-1-922069-72-6
2. Literature Review
Supply chain management (SCM) involves the management of interdependencies
between companies or organization from downstream to upstream in whole supply chain
(Gunasekaran and Ngai 2003).The ability to manage interdependencies which
encompasses of business activities is the core elements of business strategy and
important sources of competitive advantages according to Porter (1996) and Samad
(2008). Therefore SCMS as a strategic domain of business is critical for firm’s
competitiveness and survival. Erricson (2011) and Samad (2012b) stressed that supply
chain management strategy (SCMS) concept has become new business philosophy
instead of only focusing on department functions and activities.
Literature has revealed that SCM and its strategy is important as it always been linked to
business performance (Ding et al 2012 and Samad 2013). Business performance is
influenced by many factors such as organizational culture, technology, organizational
factors and strategic manegement (Samad 2012a). Theoretically SCMS focuses on the
integration of suppliers, manufacturing distribution and customers in which raw materials
from suppliers are channeled to manufacturers to assemble them into finished product
and deliver to the customers. Chan and Chan (2009) described SCMS as series of
activities that involve planning, coordination and controlling of material, parts and finished
goods from suppliers to customers. Koulikoff-Souviron and Harrison (2010) highlighted
that SCMS involve collaboration, coordination and integration across internal and external
organizations and throughout the supply chain. Bowersox et al. (1999) viewed SCMS as a
network of actors that transforms raw material to distributed products. Esper et al. (2009)
suggested in order to manage supply chain successfully it requires strategy that focuses
on the demand and supply process to create customer value through interorganization of
knowledge management. Demand process involves activities such as marketing, sales
and customer relationship, while supply encompasses activities such as inbound logisics,
operation and outbound logistics. Council of Supply Chain Professional (CSCMSP)
referred SCMS as integrated supply and demand management within and across the
company (Koulikoff-Souviron and Harrison (2010). Accordingly SCMS is also referred as
management of upstream and downstream relationship with suppliers and customers to
deliver goods or services at superior value and lowest cost.
SCMS is contrary from supply chain management practice (SCMP). SCMP is referred as a
set of activities undertaken in an organization to promote effective management of its
supply chain. Scholars have defined SCMP differently according to the context of the
study and the background of their disciplines. For example Donlon (1996) defined SCMP
which includes supplier partnership, outsourcing, cycle time compression, continuous
process flow and information sharing. Tan et al (2002) refers SCMP in terms of
purchasing, quality, and customer relations. Alvarado and Kotzab (2001) stated that using
interorganizational systems in supply chain practice such elimination of excess stock
levels by postponing customization toward the end of the supply chain is referred as
SCMP. Tan et al. (2002) postulated six elements of SCMP namely: supply chain
integration, information sharing, supply chain characteristics, customer service
management, geographical proximity and JIT capability. Chen and Paulraj (2004) used
supplier base reduction, long-term relationship, communication, cross-functional teams
and supplier involvement to measure buyer-supplier relationships in their SCMP model.
The seven elements of supply chain management practice such as agreed vision and
goals, information sharing, risk and award sharing, cooperation, process integration, long-
Proceedings of 4th European Business Research Conference
9 - 10 April 2015, Imperial College, London, UK, ISBN: 978-1-922069-72-6
term relationship and agreed supply chain leadership was suggested by Min and Mentzer
(2004).
Analyzing supply chain definitions since 1989 it can be concluded that SCMS involves
management functions of organization which begins with planning, coodination and
controling, then shifting to the collaboration of internal and external organization involving
all vertical organization functions. Recently the definition has emphasized on collaboration
between supply chain partners in managing demand and collaboration and in managing
supply alignment to the demand, utilizing interorganization, knowledge management and
innovation (Sambasivan et al 2009). The main objective of SCMS is to optimize
performance of the chain to add as much value as possible. This implies that SCMS’s
purpose is to link all of the supply chain agents to jointly cooperate within the firm to
maximize productivity in the supply chain and improve business performance (Finch
2006). Mentzer (1993) stated that the significant importance of SCMS is based on its
systematic, strategic coordination of the traditional business functions within a particular
company and across businesses within the supply chain to improve business
performance.
SCMS provides many benefits in logistics industry and has become a focus of attention by
many researchers. The need of SCMS was due to the compressed of product lifecycle,
the rapid change in technology and the high cost of inventory (Liu et al 2010). Further the
product tends to be obsolete especially if the company have no ability in marketing.
Adopting SCMS is essential to ensure logistics’ company stay competitive in global race
and improve the whole supply chain efficiency. Global competition and increased
customer requirement have contributed to the need of collaboration that enable flexibility
and remain competitive (Smirnov et al 2008). Therefore SCMS needs to focus strategic
approach to gain different advantages from coustomers (Erik, 2010). Despites its
advantageous SCMS is facing difficulties to capture the actual demand in a very dynamic
situations. Demand is influenced by many external factors that most of the time is out of
the firm control. These factors include competitor’s supply, competitor’s price, rapid
changes in technology, economic conditions, consumer behaviour and the difficulty in
capturing demand for non-standard products as certain product is unique for each
production. Other challenges of SCMS are time bound or season, where the demand only
exists in certain time and the involvement of so many parties internally and externally in
the supply chain process which require effective coordination and teamwork.
2.1 Supply Chain Management Strategy Approach
The preceding discussions suggest that a strategy within the supply chain context is
needed to ensure SCM (supply chain management) effectively carried out and improve
the business performance. Liu et al (2010) developed 6 dimensions of SCMS namely
strategic supplier partnership, customer relationship, information sharing, information
quality, internal lean practice and postponement to secure competitive advantage and
business performance. Sambasivan et al (2009) pointed out that the establishment of
collaborative relationship both within and beyond the organization will enable better and
efficient coordination and achieve more cost advantage and profit. Esper et al.(2009)
advocated that customer value creation through SCMS can increase business
performance. SCMS involves management the interdependencies between companies or
organization from downstream to upstream in whole chain (Gunasekaran & Ngai, 2003).
Thus the ability to manage interdependencies is important as it appears as sources of
Proceedings of 4th European Business Research Conference
9 - 10 April 2015, Imperial College, London, UK, ISBN: 978-1-922069-72-6
competitive advantages which ultimately influence business performance (Samad et al
2015).
SCMS is an approach of getting competitive advantage by delivering the right product at
right location at the time it is demanded with lowest cost possible or high profits. It is also
about strategy to work together with external party collaboratively to bring the smooth flow
of products or service horizontally to customers effectively and efficiently. Happek (2005)
suggested three elements of SCMS which are communication with the partners,
performance management and periodic review. Delfmann et al. (2002) suggested for
logistic service providers to adopt SCMS of global present and flexible capacity
management strategy. This can be achieved through organic growth, merger and
acquisition, cooperation strategy, and extensive use of spot market of local logistics. Ding
et al. (2012) posited that the wide spread distribution coverage is one of the key factors of
logistic service provider capabilities and services advantages.
Liu et al. (2010) in a study of logistics supply provider capabilities and competitiveness
suggested category of SCMS which includes operational, strategic and network. Operation
comprises dimensions of service quality, CRM (customer relationship management),
operation management, inventory management, business process management and cost
management. It was found that operation capability strategy tends to be the highest
contribution to logistics supply providers’ competitiveness and business performance.
Strategic factors consists of corporate culture, HRM, and strategic management, while
network factors include IT, marketing and service network. Deriving from Liu’s et al.
(2010) model this study attempted to examine the influence SCMS (consists of strategic
alignment, operation strategy and collaboration strategy) on business performance.
2.2 Supply chain management strategy and Business Performance
Since 1950s SCM in logistics companies and logistic service provider have been widely
researched due to the trend of globalization and the advent of technology in recent
decades. The industries are growing and become very important as they help to optimize
the existing production and distribution processes through management techniques to
achieve efficiency and competitiveness. The important element in a logistics supply chain
is transportation system as according to the literature this sector occupies one third of
logistics costs and transformation systems which finally influence performance of logistics
systems. Therefore SCMS is vital to ensure the high performance of transportation
logistics companies.
Research on performance of logistics companies has been addressed differently by
different authors. Similarly the instruments to measure performance have been addressed
in a variety of approach. Generally two streams of business performance measures were
used by researchers mainly based on financial and non-financial performance (Samad et
al 2014 and Samad et al 2015). Accordingly business performance in logistic companies
has been measured based on supply chain performance measurement to capture
financial and nonfinancial aspects (Samad, 2008 and Samad, 2011). For example
Krajewski and Ritzman 2002) measured supply chain performance in terms of lead time,
cost, capacity, quality delivery and flexibility. Beamon (1999) have concluded that supply
chain performance is in a form of matrix which consists aspects such as cost, time,
customer responsiveness, and flexibility.
Proceedings of 4th European Business Research Conference
9 - 10 April 2015, Imperial College, London, UK, ISBN: 978-1-922069-72-6
Gunasekaran and Ngai (2003) highlighted that logistics industry has contributed a
significant influence on company’s competitiveness. Understanding the strategy approach
of SCM is important to ensure the efficiency of SCM of logistics service providers and
companies. Gunasekaran and Ngai, (2003) in their study found that many three party
logistics companies lack of SCMS. This is no exception in Malaysian context (Kumar and
Singh (2012). Literature has indicated strong evidence on the influence of SCMS in
creating sustainable competitive advantages and business performance (Samad 2012b).
Liu et al. (2010) highlighted the need of more research that relates SCMS and sustainable
competitive advantages, supply chain performance and business performance. Hilletofth
and Hilmola (2010) argued that research on the influence of SCMS and business
performance is still neglected.Therefore this study was conducted to fill the gap of the
previous research findings.
Based on the preceding discussions and literature review this study was to empirically
examine the relationship between SCMS and business performance. Consequently the
study examined the contribution of SCMS on business performance. It also determined
the most important SCMS that influences business performance. The following
hypotheses are proposed in this study:
H1:
H2:
H3:
There is a positive and significant relationship between SCMS (alignment strategy,
operation strategy and collaboration strategy) and business performance,
There is a significant influence of SCMS (alignment strategy, operation strategy and
collaboration strategy) on business performance,
Alignment strategy is the most important strategy or factor that influences business
performance
3. The Methodology
Participants in the study were managerial staff of Malaysian logistics companies. 200 selfadministered questionnaires were distributed to the respondents based on convenience
sampling. 150 useable questionnaires were used in the statistical analysis representing a
response rate of 75% from the sample. The independent variable of the study was SCMS.
The construct was measured based on three main dimensions: alignment strategy (15
items adapted from Datta and Christopher 2011, Koulikoff-Souviron and Harrison 2010);
operation strategy (15 items adapted from Lee et al 2010, Ding et al 2012, Sambasivan et
al 2009); and collaboration strategy (15 items adapted from Lee et al 2010, Ding et al
2012 and Sambasivan et al 2009). Alignment strategy constitutes three aspects of
partnership alignment, internal business alignment and human resource alignment.
Operation strategy contains aspects of information sharing, interorganization system and
knowledge management and sharing. Meanwhile Collaboration strategy includes aspects
of collaboration itself, network coverage and customer, supplier relationship management
(CSRM). All items were measured with seven-point Likert-type scales ranging from 1
(strongly disagree) to 7 (strongly agree). The reliability coefficient for all components of
SCMS is depicted in Table 1.
Business performance was the dependent variable of this study. Business performance
construct consists of 18 items and was measured based on six aspects of service quality,
logistic cost, flexibility, agility, cycle time and financial. The instrument was adapted from
Liu et al (2010), Ding et al (2012), Hult et al (2004) and Huratiu and Daniel (2012). The
response options for these items were based on a 7 point Likert-scale ranging from 1=
Proceedings of 4th European Business Research Conference
9 - 10 April 2015, Imperial College, London, UK, ISBN: 978-1-922069-72-6
strongly disagree to 7= strongly agree.
performance was .95.
The reliability coefficient for overall business
4. The Findings
4.1 Demographic Profiles
The results from the study revealed that more than half (60%) of the respondents were
male and 40% were female. Whilst 35% of the respondents were those from higher level
of management staff, 40% middle management and 25% from lower level managerial
staff. Meanwhile the average age of the respondents was 40.04 years, while the mean
age of their experience in the organization was 17.3 years and experience with the current
job was 6.6 years. Majority of the respondents (92%) were married while 8% were not
married.
4.2 Relationship between SCMS and Business Performance (H1)
Table 1 indicates the mean, standard deviation and the reliability coefficients of the
variables which concur with Nunnaally’s (1978) minimum acceptable level of 0.70.
Table 1: Number of Items, Mean, Standard Deviation and Cronbach’s Alpha Values
Number
of
Variables
Items
Mean
S.D
α
Alignment strategy
15
5.70
1.34
0.93
Operation strategy
15
5.30
1.11
0.94
Collaboration strategy
15
5.46
0.96
0.86
Business performance
18
5.53
1.10
0.95
Meanwhile Table 2 presents the correlation analysis of the study variables. As shown in
Table 2, all of the independent variables are positively correlated with business
performance. This correlation analysis also revealed that all dimensions of SCMS
(alignment strategy, operation strategy and collaboration strategy) are correlated to each
other and are positively related with business performance. Thus the hypothesis HA1 was
accepted. The study concludes that all of the SCMS components significantly enhanced
the business performance.
Table 2: Correlation Coefficients of the Main Variables
Nu
Variables
1
1
Alignment strategy
.93
2
Operation strategy
.24*
3
Collaboration strategy
.42*
4
Business Performance
.48*
*p = 0.05 (Alpha reliability values are shown on the diagonal)
2
3
4
.94
.43*
.22*
.86
.55*
.95
Examining the relationship of each variable, the analysis revealed that the strength of the
relationship ranges from low to moderate, positive and significant relationship. As can be
seen in Table 2, there is no issue of multicollinearity problem in this data as the
correlations between the independent variables and dependent variable are not high. This
Proceedings of 4th European Business Research Conference
9 - 10 April 2015, Imperial College, London, UK, ISBN: 978-1-922069-72-6
implies that a multiple regression analysis can be carried out to answer the hypotheses H2
and H3 of the study
4.3 Influence of SCMS on Business Performance (H2)
Table 3 presents the results of regression analysis to answer the hypotheses H2 and H3
of the study. In order to answer the hypothesis 2, all of the SCMS components were
regressed with business performance. As can be seen on Table 3, the R2 value was .52
indicating that 52 percent of variance in business performance was explained by three
components of SCMS. Examining each of the SCMS components, all of the components
had a positive and significant effect on business performance. Thus the result provided full
support for hypothesis H2 that SCMS influenced significantly business performance.
Table 3: Influence of SCMS on Business Performance
Business Performance
Dimensions
Alignment strategy
Operation strategy
Collaboration strategy
*p = 0.05
Std β
t
.61
.50
.29
2.05
2.56
1.24
R²
0.52
f
104.82
P
.000*
.000*
.000*
.000*
4.4 The most important of SCMS for business performance (H3)
As tabulated in Table 3 among the three components of SCMS, alignment strategy (ß=
.61) indicated the highest value thus emerged as the most important aspect of SCMS that
contributed significantly to business performance. This suggests that alignment strategy is
the most important strategy among all the three SCMS that contributed significantly to
business performance. Thus HA3 of the study is accepted.
5. Summary and Conclusions
The purpose of this study was to examine the relationship between SCMS and business
performance. Further it examined the contribution of SCMS on business performance.
The study also examined the most important aspect of SCMS that influences business
performance. The correlation matrix indicated that all of the SCMS components were
positively related to business performance. Further the multiple regression analysis
revealed that all of the SCMS had a positive and significant influence on business
performance. This implies that all of the SCMS components had important role in
enhancing the business performance in Malaysian logistics’ company. The result also
revealed that alignment strategy emerged as the most important strategy in enhancing
business performance. This implies that in order to achieve business performance in the
logistics company, management needs to strengthen and give more emphasis on
alignment strategy despite the other strategy of operation and collaboration strategy. Much
has been highlighted on the importance of alignment strategy as it highlights the extent of
alignment of the project goals (targets) with the project’s competitive situation, the project
resources available and the firms overall business strategy (Hong et al., 2011). This
Proceedings of 4th European Business Research Conference
9 - 10 April 2015, Imperial College, London, UK, ISBN: 978-1-922069-72-6
implies that the three main aspects of alignment strategy which are partnership alignment
(classified as external environment or external strategic alignment factor by Zajac et al.,
2000) and internal business alignment as well as human resources alignment (classified
as internal strategic alignment by Zajac et al., 2000) are critical factor in improving
business performance of logistics company. Chen and Huang (2010) supported that that
the growth and profitability (business performance) of organization is influenced by
strategic alignment both internally and externally. The result of this study is consistent with
previous studies done other researches such as Samad et al (2013), Liu et al. (2010),
Hilletofth and Hilmola (2010). This study suggests that all of the SCMS aspects need to be
recognized as a potential factor for business performance in Malaysian logistics’ company.
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